Week ends on quiet note, though some financials tighten; XTO still trading; primary on hiatus

By Cristal Cody and Sheri Kasprzak

New York, Dec. 18 - Investment-grade bond trading slowed on Friday, closing out the last full trading week of 2009; activity is expected to dwindle further ahead of the Christmas Day holiday in the upcoming week, market participants said.

One trader put it this way: "It's very dead. A lot of people are hitting the road."

There seemed to be some activity, however, in Wells Fargo & Co.'s 5.3% notes due 2011, which a source quoted as substantially tighter during the session.

The overall financial sector meantime seemed to have gotten over the weakness seen on Thursday after Citigroup Inc.'s planned $20 billion equity sale came up $3 billion short.

Among the non-financials, there was still some interest seen in XTO Energy Inc.'s paper, which had tightened smartly earlier in the week on the news that the Texas natural gas company had agreed to be bought by energy giant ExxonMobil Corp.

There was also some residual activity seen in the new bonds of Sherwin-Williams Co., which priced earlier in the week - possibly the last pricing of the year, said primaryside sources, who saw absolutely no activity Friday and who forecast an extremely quiet upcoming two weeks.

Back on the secondary side, a trader said Friday afternoon that "buying is very low right now, at $4.9 billion. I would be surprised if it got to $7 billion," noting that trading in high-grade debt a day earlier had totaled some $7.9 billion.

A source said the mid bid-asked spread level on the CDX Series13 North American high-grade index came in by 2 basis points to 89 bps.

Dollar-volume totals for overall market activity dropped by fully one-third from Thursday's pace, while advancing issues were about equal with decliners.

Spreads overall were seen having tightened, as Treasuries fell and their yields rose. The 10-year Treasury note, for instance, widened out by 6 bps on the day, to 3.54%.

Spreads tighten as Dubai fears fade

Overall, spreads in the U.S. corporate bond market "continued to tighten in December, as the roller coaster ride of 2009 comes to an end," JR Rieger, vice president of fixed income indices at S&P Indices, said Friday in a research note.

"Following the uncertainty at November month end caused by fear of a Dubai World default, investment grade company spreads have come in over 21% as seen in both the S&P 100 CDS and S&P CDS US Investment Grade Indices." the analyst wrote.

Wells Fargo seen 50 bps tighter

A market source quoted Wells Fargo's 5.3% notes due 2011 at 50 bps lower on Friday, versus the 110 bps bid level quoted a day earlier.

Wells Fargo meantime released additional details Friday of the sale of 426 million shares in a public offering at $25 a share.

The San Francisco-based major bank said in an 8-K filing with the Securities and Exchange Commission on Friday that it received net proceeds from the offering of $11.97 billion.

Wells Fargo also granted underwriters Wells Fargo Securities, LLC and Goldman Sachs†& Co. an option to purchase an additional 63.9 million shares, which they exercised on Tuesday, according to the filing.

Citi, Bank of America lead financials tighter

Meanwhile, issues from Citigroup Inc. and Bank of America Corp. were quoted tighter on Friday, a source said.

"There was only one large trade" in Citigroup's 6.375% bonds due 2014, which were quoted having come in by 5 bps Friday to 275 bps over Treasuries.

New York-based Citigroup's $17 billion stock sale to repay government loans - which priced at a discount to its share price late Wednesday - fell some $3 billion short of the approximately $20 billion which the banking giant had hoped to raise, causing the bank and finance sector to widen out on Thursday.

But on Friday, Citi's 6.50% notes due 2013 were seen trading some 40 bps tighter on the session, around the 170 bps over level.

Bank of America's 7.625% notes due 2019 narrowed by 5 bps to 185 bps, a source said, while the Charlotte, N.C.-based banking behemoth's 6 1/8% notes due 2013 were 20 bps tighter at 155 bps over.

However, "there doesn't seem to be a lot of flow in general on either of those," one trader said of Citi's and B of A's notes.

A trader who watches financials said that "there was actually a good tone to the market. Things were a little bit better today, across the board." He said that "once the Citigroup thing kind of got out of the way [Thursday], we started generically trading a little bit better."

He meantime saw no impact on the market from B of A's announcement Wednesday that Brian T. Moynihan will take over as chief executive officer and president of the company from the retiring Kenneth D. Lewis in exactly two weeks, on Dec. 31.

Looking elsewhere around the financial world, he also opined that "the stuff with a little bit of juice in them" seemed to be "doing a little bit better." He cited as an example the kind of subordinated hybrid bonds issued by many investment-grade financial names, which trade actively in both the high-grade and the crossover junk markets. "The lower dollar stuff, that people are less afraid of, seems to be better."

The trader additionally saw "some of the insurance-type sectors outperforming."

He quoted Aflac Inc.'s 6.90% bonds due 2039 at 246 bps bid, 242 bps offered, still in from the 250 bps over level at which the Columbus, Ga.-based insurer had priced its $400 million offering this past Monday.

He also said that " some of the wider-trading paper still has a relatively good tone to it, a good bid to it," mentioning insurance credits like Pacific Life Global Funding and Massachusetts Mutual Life Insurance Co. "They're well bid for, and still have a lot of spread to them."

Verizon 6.35s quoted tighter

Away from the financials, a source quoted Verizon Communications Inc.'s 6.35% notes due 2019 having tightened by 15 bps to 105 bps over Treasuries.

The New York-based telecommunications company's 6.25% notes due 2037 were unchanged at 155 bps over.

XTO sees some interest

XTO Energy saw some "decent" action on Friday, a trader said, though the spread hasn't changed much since the Fort Worth, Tex.-based energy exploration and production company's announcement on Monday it will be acquired by ExxonMobil in a transaction valued at $40 billion, including $10 billion of assumed XTO debt.

XTO's 6.5% notes due 2018 "were active," the trader said. "It looks like there were a couple of decent trades on it today. They're trading about 75 bps over the 10 years and they've been sticking to the same range."

Sherwin-Williams dealings continue

Meanwhile on Friday, interest continued in Sherwin-Williams's new five-year notes, with several transactions seen, a trader said.

"There is a bid for the bonds at 76 bps," the source said, with the bonds offered at 70 bps over Treasuries.

Sherwin-Williams, a Cleveland-based paint manufacturer sold $500 million of the 3.125% five-year senior unsecured notes on Wednesday at Treasuries plus 82 bps.

Cleaning up at year-end

Looking ahead to the Christmas and New Year's Day holiday weeks, not much year-end investment grade trading is expected, sources said Friday.

"It's pretty pathetic out there. The market pretty much tends to die that week because no one's around," one trader said. "Most people have already cleaned up their portfolio and window dressing."

Primary quiet

In the primary arena, meantime, market insiders reported that new-deal activity was essentially non-existent ahead of what is expected to be a very quiet next two holiday weeks.

"Nothing is coming up for the rest of the year," said one sellside source.

The coming week might offer a few deals, another market source told Prospect News, but that source had no specific names.

"It's going to be very quiet, for certain," the source noted.

"There might be one or two things out there - but not much."

-Paul Deckelman contributed to this report

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